Contents

Introduction ..................................................................................................................................... 3
History of Bangladesh Bank: ...................................................................................................... 3
Vision of the Bangladesh Bank: ................................................................................................. 4
Mission of the Bangladesh Bank: ............................................................................................... 4
Objectives of Bangladesh Bank: ................................................................................................. 4
Functions Of Bangladesh Bank .................................................................................................. 4
Services for general public.......................................................................................................... 5
Functions of Bangladesh bank ........................................................................................................ 6
The general or traditional function ............................................................................................. 6
Functions as a government bank ................................................................................................. 6
Functions as a bank of other banks ............................................................................................. 7
Special functions ......................................................................................................................... 7
Standard of Living .......................................................................................................................... 8
What is green finance? ................................................................................................................ 8
Green Transformation Fund ........................................................................................................ 9
Bangladesh Bank Contribution in Economic Growth .................................................................. 10
Incentives Through Monetary policy ........................................................................................ 10
Reserve Management Strategy ................................................................................................. 11
Through Interest Rate Policy .................................................................................................... 11
Capital Adequacy for Banks and FIs ........................................................................................ 11
Deposit Insurance & Insurance Authority ................................................................................ 12
Regulator of Capital Market Intermediaries ............................................................................. 12
Regulator of Micro Finance Institution..................................................................................... 13
GDP & Overall Economic Growth: .......................................................................................... 13
Others Economic Growth Sectors of Bangladesh Bank ........................................................... 14
Customer Complaints in Bangladesh Bank .................................................................................. 16
Customer complaint arises due to: ............................................................................................ 16
Compliance to Bangladesh bank:.............................................................................................. 17

1
 Strategies To Mitigate Complaints: .......................................................................................... 17
References: ................................................................................................................................ 17
CHALLENGES FOR BANGLADESH BANK ........................................................................... 19
Low quality of asset .................................................................................................................. 19
Lack of good governance, accountability and transparency ..................................................... 20
Inadequacy of effective risk management system .................................................................... 21
Risk mitigation strategies .......................................................................................................... 25
REFRENCES: ........................................................................................................................... 26
Sustainable development goals of Bangladesh Bank.................................................................... 27
Policy Initiatives ....................................................................................................................... 27
Environmental and Social Risk Management (ESRM) ............................................................ 28
Climate Risk Fund .................................................................................................................... 28
Online Banking and Energy Efficiency .................................................................................... 28
Sustainability Rating ................................................................................................................. 28
Financing Brick Kiln Efficiency Improvement Project Supported by Asian Development Bank
(ADB) ....................................................................................................................................... 28
Corporate Social Responsibility (CSR) .................................................................................... 29
CSR Activities of Banks and NBFIs ......................................................................................... 29
Bangladesh Bank's Own CSR Activities .................................................................................. 29
Financial Inclusion Activities in Bangladesh ........................................................................... 29
References ................................................................................................................................. 30
Conclusion .................................................................................................................................... 31

2
 Introduction

Bangladesh Bank is the central bank of Bangladesh and is a member of the Asian Clearing Union.
It is fully owned by the Government of Bangladesh. The bank is active in developing green
banking and financial inclusion policy and is an important member of the Alliance for Financial
Inclusion. Bangladesh Financial Intelligence Unit (BFIU), a department of Bangladesh Bank, has
got the membership of Egmont Group of Financial Intelligence Units. Bangladesh Bank is the first
central bank in the world to introduce a dedicated hotline (16236) for people to complain about
any banking-related problem. Moreover, the organization is the first central bank in the world to
issue a "Green Banking Policy". To acknowledge this contribution, then-governor Dr. Atiur
Rahman was given the title 'Green Governor' at the 2012 United Nations Climate Change
Conference, held at the Qatar National Convention Centre in Doha. Abdur Rouf Talukdur is the
present governor of Bangladesh Bank. Bangladesh Bank, as a central bank, also has supervisory
powers, to ensure that banks and other financial institutions do not be have recklessly or
fraudulently. Bangladesh bank is also considered as a highest regulatory authority of Bangladesh.

History of Bangladesh Bank:

On 7 April 1972, after the Independence War and the eventual independence of Bangladesh, the
Government of Bangladesh passed the Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972),
reorganizing the Dhaka branch of the State Bank of Pakistan as Bangladesh Bank, the country's
central bank and apex regulatory body for the country's monetary and financial system.
However, government control of the wrong sectors prevented these banks from functioning well.
This was compounded by the fact that loans were handed out to the public sector without
commercial considerations; banks had poor capital lease, provided poor customer service and
lacked all market-based monetary instruments. Hence, banking concepts like profitability and
liquidity were alien to bank managers, and capital adequacy took a backseat.
In 1982, the first reform program was initiated, wherein the government denationalized two of the
six nationalized commercial banks and permitted private local banks to compete in the banking
sector. In 1986, a National Commission on Money, Banking and Credit was appointed to deal with
the problems of the banking sector, and a number of steps were taken for the recovery targets for
the nationalized commercial banks.
The Financial Sector Adjustment Credit (FSAC) and Financial Sector Reform Programmed
(FSRP) were formed in 1990, upon contracts with the World Bank. Policies therefore involved
banks providing loans on a commercial basis, enhancing bank efficiency and limiting government
control to monetary policy only. FSRP forced banks to have a minimum capital adequacy, to
systematically classify loans and to implement modern computerized systems, including those that
handle accounting. It forced the central bank to free up interest rates, revise financial laws and

3
increase supervision in the credit market. The government also developed the capital market,
which was also performing poorly.
At present it has ten offices located at Motijheel, Sadarghat, Chittagong, Khulna, Bogra, Rajshahi,
Sylhet, Barisal, Rangpur and Mymensingh in Bangladesh; total manpower stood at 5807 (officials
3981, subordinate staff 1826) as of 31 March 2015.

Vision of the Bangladesh Bank:

To develop continually as a forward-looking central bank with competent and committed
professionals of high ethical standards, conducting monetary management and financial sector
supervision to maintain price stability and financial system robustness, supporting rapid broad
based inclusive economic growth, employment generation and poverty eradication in Bangladesh.

Mission of the Bangladesh Bank:

Bangladesh Bank is carrying out its following main functions as the country’s central bank:
❖ Formulation monetary and credit policies
❖ Managing currency issue and regulating paying system
❖ Managing foreign exchange reserves and regulating the foreign exchange market
❖ Regulating and supervising banks and financial institutions and advising the government
on interactions and impacts of fiscal, monetary and other economic policies.

Objectives of Bangladesh Bank:

As the central bank of Bangladesh, the objectives of the Bangladesh Bank are:
1. To regulate currency issuance and to keep foreign exchange reserves.
2. To manage the monetary and credit system of Bangladesh with a view to stabilizing domestic
monetary value.
3. To preserve the par value of the Bangladesh Taka.
4. To Promote and maintain a high level of production, employment and real income of Bangladesh
and to foster growth and development of the country’s productive resources.
5. To reserve the all rights of the bank.

Functions Of Bangladesh Bank

The Bangladesh Bank performs all the functions that a central bank in any country is expected to
perform. Such functions include maintaining price stability through economic and monetary policy
measures, managing the country's foreign exchange and gold reserve, and regulating the banking

4
sector of the country. Like all other central banks, Bangladesh Bank is both the government's
banker and the banker's bank, a "lender of last resort". Bangladesh Bank, like most other central
banks, exercises a monopoly over the issue of currency and banknotes. Except for the one-, two-,
and five-taka notes and coins which are the responsibility of the Ministry of Finance of the
Government of Bangladesh. The major functional areas include:

➢ Formulation and implementation of monetary and credit policies.

➢ Regulation and supervision of banks and non-bank financial institutions, promotion and
development of domestic financial markets.
➢ Management of the country's international reserves.
➢ Issuance of currency notes.
➢ Regulation and supervision of the payment system.
➢ Acting as banker to the government.
➢ Money laundering prevention.
➢ Collection and furnishing of credit information.
➢ Implementation of the Foreign Exchange Regulation Act.
➢ Managing a deposit insurance scheme.

Services for general public

Bangladesh Bank serves the people in many ways.
The Bank issues banknotes with special security features so that owner knows the money is
genuine. View the security posters to know the features. If you have deposited your money in
scheduled banks, and have not made transaction for last ten years, you can check your account
from 'Claim your money' link.
Any client, person or agency having complaint(s) against a Scheduled Bank/FI/Bangladesh Bank
or related official may write down his/her complaint(s) in the 'Customer Complaint' link. Find out
some important BB forms from 'BB Forms' link.

5
 Functions of Bangladesh bank

As other central banks worldwide, BB also performs significant works. Those functions have
four main categories, those are-
✓ The general or traditional function
✓ As government bank
✓ As a banker of other banks
✓ Special functions

The general or traditional function

• Currency circulation: the principal job of BB is to circulate different values of currencies.
In Bangladesh, only BB has rights over currency circulation. BB has 6 official banknotes,
those are- 10-taka, 20-taka, 50-taka, 100-taka, 500 takas & 1000-taka banknote.
• Control over money market: As a controller of the money market, BB stabilizes the total
amount of currency, quality & loans to control the price of products.
• Value of currency: To make stable a countries economy, it controls the quality and value
of the paper currency and coins. To stable the value of the currency it reserves gold or
foreign currency against the issued note and coins.
• Currency revaluation: BB revaluate currencies with the permission of the government to
cope up with international economics. Revaluation of currencies increases or decrease the
exchange rate with foreign currencies.
• Developed banking system: As a central bank BB takes the responsibility of compliment
& potential banking system.
• Exchange foreign currency: As a controller of the money market of Bangladesh, BB
performs all functions related to foreign currency exchange. This bank also sets the value
and quality of native currency and its exchange rate with foreign currency.
• The economic development of the country: BB also works on increasing GDP and its
growth rate, improve the standard of living.

Functions as a government bank

• Preservation of funds and assets: Bangladesh bank preserves all the funds and assets of
government without any cost.
• Accountant of government: BB stores all the accounts of money and wealth of the
Bangladeshi government to help the government.
• Accept deposits: It accepts all deposits in favor of the government.
• Loans: This bank provides loans to the government without any interest.

6
 • Financial transaction: BB transfers money from one place to another, from one sector to
another sector with the direction of government.
• Buy & sell foreign currencies: This bank buys and sells foreign currencies in favor of the
government.
• Relationship with foreign banks: It builds up relations with other central banks and
international organizations worldwide as a representative of the government.
• Advisor and representative of government: It works as a representative of the government
at home and abroad. It also provides advises to the government on the development plan,
control loans, foreign exchange, create laws on money and banking and control over
export-import.
• Collect statistics, storage and its supply: It collects statistics related to the economy of
Bangladesh and provides them to the government.

Functions as a bank of other banks

• Establishment of banks: There needs the permission of BB to open a new bank or to open
new branches of a bank.
• Control over loans: It controls the overall loans of banks in our country.
• Last source of loan: This bank lends money to other banks when any commercial or
scheduled bank faces a shortage of funds.
• Audit accounts: To ensure the compliment banking system and to control banks, BB
audits banks.
• Clearance house: BB works as a clearance house to the settlement of those banks’ mutual
debts.
• Control: BB controls the functions of banks and other financial institutions.
• Advisor: It works as an advisor to other banks.
• Providing information: Bangladesh bank provides different information and statistics to
other banks and financial institutions.

Special functions
• Agricultural development: For the development of agriculture in Bangladesh, BB
provides loans to farmers and related institutions with the help of agricultural banks or
with the wing of agriculture of other banks.
• Industrial development: BB provides loans to improve the industrial condition of our
country with the help of an industrial bank or with the wing of the industry of other
banks.
• Cooperative loans: this bank provides loans to farmers, small businessmen, and other
peoples with different occupations by cooperative associations and cooperative banks.
• Other functions: In addition to the above Bangladesh bank helps to get financial services
on the development of forests, discover and extract minerals, develop on Chattogram hill
tract; jute, leather and tea exports.

7
 Standard of Living

The number of goods and services available for purchase in a nation is referred to as the standard
of living.
What are some instances of standard of living?
Income, employment prospects, the cost of products and services, and poverty are all clearly
quantifiable indicators of one's standard of living. Life expectancy, inflation, and the amount of
paid vacation days people receive each year are also considered.
Standard of living may influence several aspects of a population, including productivity and
happiness. This is significant because the higher production and pleasure levels are, the better off
an economy is as a whole.
Bangladesh Bank has a huge contribution in improving the standard of living. For instance, from
many foreign banks, the people who live in abroad send money to their family members.
Bangladesh Bank receive those money and gives those to them. By this the family members get
money and it improves their standard of living.
Bangladesh Bank has committed to promoting financial inclusion activities to facilitate the best
use of economic resources in accordance with the responsibilities assigned to it by various statutes
and acts, including the parent law "The Bangladesh Bank Order, 1972" (amended until July 2020).
BB has taken a number of steps as part of this mission to make it easier for the poor and unbanked
people in the country, who typically don't have access to financial services, to get credit and other
financial services.
Bangladesh Bank contributes in improving standard of living indirectly but the importance of it is
very significant. For example, Government of Bangladesh has provided more than 5cror TK to the
Bangladesh Bank to help the people with poverty line during covid time and that loan was with
limited interest. So, that time Bangladesh Bank distributed those loans to different banks to help
the poor people and unemployed people that time. Bangladesh bank have some contribution in
green financing and green transformation fund etc. Those are described below:

What is green finance?

It is introduced by Bangladesh Bank in 2016. Green Transformation Fund (“GTF”) provide finance
for environment-friendly infrastructure in export-oriented industries in Bangladesh. During FY21,
banks disbursed BDT 97.64 billion in green finance, while NBFIs disbursed BDT 3.16 billion,
representing a 4.41 percent share of total term loan disbursement.
Green Taxonomy has been incorporated into the Standard of living. As a result, while addressing
the Sustainable Finance Taxonomy previously, green strategic planning, R&D for green

8
innovation, service marketing, awareness and capacity building, and green impact assessment were
all taken into account.

Green Transformation Fund

The establishment of the Green Transformation Fund is BB's most recent initiative to promote
sustainable finance. Green Transformation Fund (GTF), BB's new 200-million-dollar long-term
refinancing window, was announced in February 2016.
The fund was initially only available to the textile, leather, and jute export-oriented sectors;
however, as of June 2019, it became available to all export-oriented sectors to ensure the country’s
sustainable export growth during the transition to a greener economy. Its goal is to make it easier
for all manufacturer-exporters in export-oriented industries to get financing in foreign exchange
so they can buy capital machinery and accessories for green projects. Waste management, resource
efficiency and recycling, renewable energy and energy efficiency, heat and temperature
management, air ventilation and circulation efficiency, and work environment improvement
initiatives1 are among the initiatives. Other initiatives include water use efficiency in wet
processing. Up until FY21, GTF disbursed USD 118.59 million to 23 projects and EUR 8.41
million to 6 projects.
CMSME (cottage, micro, small & medium) as defined by Bangladesh Bank, financial decisions
based on environmental, social, and governance (ESG) factors will address issues of inequality,
inclusion, investment in human capital and communities, biodiversity preservation, pollution
control, and the circular economy.
Rural-based business enterprise project funding, new entrepreneur project financing, cluster-based
project financing Industry of agricultural product processing etc. in these sectors Bangladesh Bank
has worked on directly or indirectly and also in CMSME industries/projects for Sustainable
standard of living, Herbal cosmetic manufacturing industries, milk processing industries based on
100% local ingredients, Handicrafts, Handloom and similar industries, Agro feed manufacturing
industries, Jute made products manufacturing industries, Unani/Ayurvedic/Homeopathic
manufacturing industries, Rice processing industries, Agro equipment manufacturing industries,
Production of bio pesticides and organic fertilizers. They also focus on project funding for the
helpless/distressed/underprivileged/marginalized groups/areas. Financing for Third Gender,
Physically/Mentally Challenged People, and Tribal People Projects. By working on these projects
directly or in directly Bangladesh bank is improving the standard of living of the people of
Bangladesh.
References:
https://www.bb.org.bd/aboutus/draftguinotification/guideline/draft_sfpolicy_bankfi.pdf
https://www.bb.org.bd/mediaroom/circulars/gbcrd/dec312020sfd05.pdf

9
 Bangladesh Bank Contribution in Economic Growth

For the last several years, the banking sector in Bangladesh has been playing an important role in
our USD 300-plus billion economies where banks comprise more than 80 percent of all financing
activity. Besides providing investible funds to both the public and the private sector, they are also
facilitating international trade and service payments, generating employment, earning foreign
remittance, strengthening the rural economy, developing the housing sector, etc. According to the
"Global Competitiveness Report 2019" of the World Economic Forum, Bangladesh scored 38.3
out of 100 and ranked 130th out of 141 countries in the soundness of banks. This ranking is the
lowest among South Asian countries (India scored 60.4 and ranked 89th, Pakistan ranking 93rd,
Sri Lanka 94th, and Nepal 106th). In defining banks' soundness, weak monitoring, growing default
loans, lack of good governance, balance sheets and availability of funds, and capacity to repay
were taken into consideration. Another report (Financial Stability Report, 2019) unveiled by the
Bangladesh Bank (BB) shows that the country's banking sector maintained the lowest capital
adequacy ratio (CAR) in 2019 compared with neighboring countries (India, Pakistan, and Sri
Lanka). Bangladesh maintained the CAR at 11.60 percent, way less than 17 percent in Pakistan,
16.5 percent in Sri Lanka, and 15.1 percent in India. Capital adequacy ratio (CAR) is the reflection
of all financial indicators of banks, including the ratio of defaulted loans, the capability of keeping
provisioning against regular and classified loans, and the actual situation of corporate governance.
In Strategic Plan (2010-2014), the vision of BB has been stated as, “To develop continually as a
forward-looking central bank with competent and committed professionals of high ethical
standards, conducting monetary management and financial sector supervision to maintain price
stability and financial system robustness, supporting rapid broad-based inclusive economic
growth, employment generation and poverty eradication in Bangladesh”.
The main focus of BB is towards economic growth in Bangladesh this are given below –
Incentives Through Monetary policy
Bangladesh Bank (BB), the central bank of Bangladesh, has been carrying out its principal task of
formulating and implementing the monetary policy to manage the monetary and credit system of
the country to stabilize domestic monetary value and maintain a competitive external par value of
Taka towards fostering growth and development of country’s productive resources in the best
national interest. BB formulates its monetary policy stance and designs monetary and credit
programs based on macroeconomic updates and outlooks at home and abroad, subject to any mid-
course revision if necessary. The main objectives of the monetary policy of Bangladesh Bank are:
Price stability both internal & external

▪ Sustainable growth & development

▪ High employment
▪ Economic and efficient use of resources
▪ Stability of financial & payment system

10
Reserve Management Strategy
Bangladesh Bank maintains the foreign exchange reserve of the country in different currencies to
minimize the risk emerging from widespread fluctuation in the exchange rate of major currencies
and very irregular movement in interest rates in the global money market. Which have a great
impact on economic sectors. BB has established Nostro account arrangements with different
Central Banks. Funds accumulated in these accounts are invested in Treasury bills, reports, and
other government papers in the respective currencies. It also makes investments in the form of
short-term deposits with different high-rated and reputed commercial banks and purchases of high-
rated sovereign/supranational/corporate bonds. A separate department of BB performs the
operational functions regarding investment which is guided by investment policy set by the BB's
Investment Committee headed by a Deputy Governor. The underlying principle of the investment
policy is to ensure the optimum return on investment with minimum market risk.
Through Interest Rate Policy
Under the Financial sector reform program, a flexible interest policy was formulated. According
to that, banks are free to charge/fix their deposit (Bank/Financial Institutes) and Lending (Bank
/Financial Institutes) rates other than Export Credit. At present, except for Pre-shipment export
credit and agricultural lending, there is no interest rate cap on lending for banks. Yet, banks can
differentiate interest rates up to 3% considering comparative risk elements involved among
borrowers in the same lending category. With the progressive deregulation of interest rates, banks
have been advised to announce the mid-rate of the limit (if any) for different sectors, and the banks
may charge interest 1.5% more or less than the announced mid-rate based on the comparative
credit risk. Banks upload their deposit and lending interest rate on their respective website. The
basis on that, it has been decided that the interest rate on EDF loans to ADs will be charged by
Bangladesh Bank at 2.50%, while ADs will charge interest to manufacturer-exporters at 4.00%
Capital Adequacy for Banks and FIs
Capital adequacy – the adequate amount (usually defined by regulators) of capital (shareholder
money) a bank needs to hold, as a percentage of its risk-weighted assets. When a bank and financial
institution faces that adequacy problem BB is always there for them. On that note, Basel-III has
been introduced to strengthen the capital base of banks to promote a more resilient banking sector.
The Basel III regulation will be adopted in a phased manner starting from January 2015, with full
implementation of capital ratios from the beginning of 2019. Now, scheduled banks in Bangladesh
are required to maintain minimum capital of Taka 4 billion or Capital to Risk Weighted Assets
Ratio (CRAR) of 10%, whichever is higher. In addition to minimum CRAR, a Capital
Conservation Buffer (CCB) of 2.5% of the total RWA is being introduced which will be
maintained in the form of CET1. Besides the minimum requirement, all banks have a process for
assessing overall capital adequacy concerning their risk profile and a strategy for maintaining
capital at an adequate level.
For this, full implementation of Basel-II has been started on January 01, 2012 (Prudential
Guidelines on Capital Adequacy and Market Discipline (CAMD) for Financial Institutions). Now,
FIs in Bangladesh are required to maintain Tk. 1 billion or 10% of Total Risk Weighted Assets as
capital, whichever is higher.

11
Deposit Insurance & Insurance Authority
Deposit insurance schemes are primarily intended to reduce the risk of systemic failure of banks
and hence to stabilize the payments and financial system. The deposit insurance scheme (DIS) was
introduced in Bangladesh in August 1984 to act as a safety net for depositors. All the scheduled
banks in Bangladesh are a member of this scheme Bank Deposit Insurance Act 2000. The purpose
of DIS is to help to increase market discipline, reduce moral hazard in the financial sector and
provide safety nets at the minimum cost to the public in the event of bank failure. A Deposit
Insurance Trust Fund (DITF) has also been created for providing limited protection (not exceeding
Taka 0.01 million) to a small depositor in case of the winding up of any bank. With this end in
view, BB has already advised the banks for bringing DIS to the notice of the public by displaying
the same on their display board. It is really important for the overall economic sectors of
Bangladesh
IDRA has been established to make the insurance industry the premier financial service provider
in the country by structuring an efficient corporate environment, securing the embryonic
aspirations of society, and penetrating deep into all segments for high economic growth. The
mission of IDRA is to protect the interest of the policyholders and other stakeholders under an
insurance policy, supervise and regulate the insurance industry effectively, and ensure orderly and
systematic growth of the insurance industry and for matters connected therewith or incidental
thereto. These two items can bring our economy & another level.
Regulator of Capital Market Intermediaries
To hold and manage the official foreign reserves of Bangladesh; to promote, regulate and ensure
a secure and efficient payment system, including the issue of bank notes; to regulate and supervise
banking companies and financial institutions.
The Securities and Exchange Commission (SEC) performs the functions to regulate the capital
market intermediaries and issuance of capital and financial instruments by public limited
companies.
The mission of the SEC is to protect the interests of securities investors, to develop and maintain
fair, transparent, and efficient securities markets, and to ensure proper issuance of securities and
compliance with securities laws. The main functions of the SEC are:
➢ Regulating the business of the Stock Exchanges or any other securities market.
➢ Registering and regulating the business of stock-brokers, sub-brokers, share transfer
agents, merchant bankers and managers of issues, trustees of trust deeds, registrar of an
issue, underwriters, portfolio managers, investment advisers, and other intermediaries in
the securities market.
➢ Registering, monitoring, and regulating collective investment schemes including all
forms of mutual funds.
➢ Monitoring and regulating all authorized self-regulatory organizations in the securities
market.
➢ Prohibiting fraudulent and unfair trade practices in any securities market.

12
Through all this BB can bring our economy smooth and add value.
Regulator of Micro Finance Institution

MRA’s mission is to ensure transparency and accountability of microfinance operations of NGO-

MFIs as well as foster sustainable growth in this sector. To achieve its mission, MRA has set itself
the task to attain the following goals: To formulate as well as implement the policies to ensure
good governance and transparent financial systems of MFIs.
1. To conduct in-depth research on critical microfinance issues and provide policy inputs to
the government consistent with the national strategy for poverty eradication.
2. To provide training for NGO-MFIs and link them with the broader financial market to
facilitate sustainable resources and efficient management.
3. To assist the government to build up an inclusive financial market for the economic
development of the country.
4. To identify the priorities in the microfinance sector for policy guidance and dissemination
of information to attain the MRA’s social responsibility.
According to the Act, the MRA will be responsible for the three primary functions that will need
to be carried out, namely:
1. Licensing of MFIs with explicit legal powers;
2. Supervision of MFIs to ensure that they continue to comply with the licensing
requirements; and
3. Enforcement of sanctions in the event of any MFI failing to meet the licensing and
ongoing supervisory requirements.

GDP & Overall Economic Growth:

Bangladesh has come a long way in its economic growth. From a meager US$ 5.70 billion in 1972,
the gross domestic product (GDP) increased to US$ 285.82 billion in 2018. The Bangladesh
economy is the 42nd largest in the world in nominal terms and the 31st largest in terms of
Purchasing Power Parity (PPP). Recently, Bangladesh graduated from least developed country
(LDC) status to a lower middle-income country and hopes to become a developed country by 2041.
A considerable increase in per capita income has been made possible by sustained economic
growth. The three broad economic sectors (agriculture, industry, and services) contributed to the
process of economic growth. Between 2009-10 and 2016-18, the growth rate of the agriculture
sector declined while it increased in the services and industry sectors. The overall share of the
agriculture (including fisheries) sector to GDP declined to around 14 percent, while that of the
services and the industry sectors increased to around 52 percent and 34 percent respectively in FY
2016-17. Within the industry sector, growth in the manufacturing (led predominantly by the ready-
made garments (RMG) sector), 'electricity, gas, and water supply', and the construction sub-sectors
experienced positive growth. Within the manufacturing sector increase, large industries
experienced positive growth, while it remained largely unchanged in the case of small-scale
industries. Within the services sector, growth in trade, hotels, restaurants, transport, storage, and

13
communication remained unchanged; and real estate declined. Financial intermediations registered
positive growth, though at a low rate.

➢ Bangladesh GDP growth rate for 2021 was 6.94%, a 3.49% increase from 2020.
➢ Bangladesh GDP growth rate for 2020 was 3.45%, a 4.43% decline from 2019.
➢ Bangladesh GDP growth rate for 2019 was 7.88%, a 0.56% increase from 2018.

Year GDP Per Capital Growth

2021 $416.26B $2,503 6.94%

2020 $373.90B $2,270 3.45%

2019 $351.24B $2,154 7.88%

Others Economic Growth Sectors of Bangladesh Bank

➢ Promotion of Savings:
People save for various reasons. Thus, people save to provide for future needs such as periods of
unemployment, old age, and sickness, to provide for education and marriage of their children, to
own property such as real estate, houses, etc. in the future, and to purchase durable consumer
goods. But they require assets in the form of which they should keep their savings in safe custody
and earn a rate of return as well. Bangladesh banks promote savings by providing a wide range of
deposits with varying combinations of liquidity and rate of interest to suit the needs and
preferences of different savers.
As a store of value, BB deposits enjoy certain advantages over tangible assets (physical capital,
inventories of commodities) and other financial assets. The bank deposits are convenient to hold
as a store of value and are safer and more liquid, i.e., they can be converted into cash easily.
They are also greatly divisible and less risky. With all these advantages, they earn varying rates of
interest depending upon the type of deposits into which the savers put their savings. These
advantages of bank deposits induce households to save more and encourage the habit of thrift.

14
 ➢ Mobilization of savings
Not only do the BB encourage savings but they also mobilize savings done by several households
and make them available for production and investment to the entrepreneurs in various sectors of
the economy.
This function of mobilizing savings is of crucial importance because, in the modern monetary
economy, the act of saving has been separated from the act of real investment. Savings are done
by millions of households and firms, whose individual savings may be very small, savings of some
may be short-term and others of long-term.
➢ Allocation of Funds:
Allocation of funds or economic surplus among different sectors, users, and producers to make a
maximum social return and thus ensure optimum utilization of savings is another important
function performed by the BB. Whereas corporate firms can raise resources through the sale of
equity shares and debentures, non-corporate firms and borrowers depend greatly on banks for
financing the needs of both working capital and fixed capital.
Through the lending rates of interest determined by market mechanism or fixed by the central bank
of the country credit advanced by the banks get rationed among various potential borrowers and
sectors. Further, before lending banks take into account the creditworthiness or capacity to pay
back the loans. Thus the banks are in a better position to judge the returns or productivity from the
uses for which the funds are lent out. This helps in the maximization of returns from scarce
financial resources
On the contrary, they preferred to invest funds collected from the public in the business concerns
of the big business houses which controlled these banks. Therefore, it was thought necessary to
nationalize them so that they should allocate resources in socially desirable directions.
➢ Promotions of Trade, Production, and Investment:
By encouraging inducement to save and also mobilizing savings from the public, banks help to
increase the aggregate rate of investment in the economy. It may also be noted that BB not only
mobilizes the saved funds from the public but also create deposits or credit.
The new deposits are created by the banks when they lend money to investors or other users. These
deposits are by the banks more than the cash reserves they obtain through deposits by the public.
These days, the bank's deposits, especially demand deposits, are as much good money as the
currency issued by the Bangladesh bank. This creation of credit, if it is used for productive
purposes, greatly larges production and investment and thus promote economic growth.

15
 Customer Complaints in Bangladesh Bank

In the Present banking system, excellence in customer service is the most important tool for
sustained business growth. Customer complaints are part of the business life of any corporate
entity. This is more so for banks because they are service organization. As a service organization
customer service and satisfaction should be the prime concern of any bank. The bank believes that
providing prompt and efficient service is essential not only to attract new customers, but also to
retain existing, However, banks minimize instances of customer complaints and grievances
through proper service delivery and review mechanism and to ensure prompt redress of customer
complaints and grievances. The review mechanism should help in identifying short-comings in
product features and service delivery. Customer dissatisfaction can ruin the name and image of a
bank. As, such bank policy on grievance redress is as follows:
1.Customer are to be treated fairly at all times.
2.Complaints should be raised by customer with courtesy and on time.
3.Customer should be fully informed of avenues to escalate their complaints/grievances within the
organization and their rights to alternative remedies, if they are not fully satisfied with the response
of the bank to their complaints.
4.Bank to treat all complaints efficiently and fairly as they can damage the bank’s reputation and
business if handled otherwise.
5.The bank employees must work in good faith and without prejudice to the interests of the
customer.
In order to make the bank mechanism more meaningful and effective, and structured system need
to be built. Such system would ensure that the redress is just and fair. The guidelines should be
made available at all branches for the information of all employees, to ensure better customer
service and general awareness in the bank.
Customer complaint arises due to:
1.The attitudinal aspects that deals with customers.
2.Inadequacy of the functions/arrangement made available to customers or gap standards of
services expected and actual services rendered.
The customer has the right to register his complaints if he or she is not satisfied with the service
provided by bank. He or she can give his complaints in writing, orally or by telephone. If the
customer’s complaint is not resolved within a given time or if he or she is not satisfied with the
solution provided by the bank, he or she can approach ‘Banking Ombudsman ‘with his complaints
or other legal avenues for grievances redress.

16
Compliance to Bangladesh bank:
a) Banks/F1s must comply with Bangladesh Bank’s advice/order in the matter of handling against
them. In order to all first resort complaints forwarded but Bangladesh Bank, concerned banks/F1s
shall resolve the complaints in the shortest possible time and inform BB accordingly.
b) When BB calls for opinions/comments/explanations on the complaints received or any
additional information/documents from the concerned bank/F1, the same should be furnished
within the stipulated time mentioned in the letter of BB.
c) When BB asks the bank/F1 to investigate about a particular complaint, the bank/F1 concerned
should submit the findings from its investigation along with the copies of supporting documents
to Bangladesh Bank within the stipulated time.
Strategies To Mitigate Complaints:
1.All the banks should constitute customer service committee.
2.Appoint ‘nodal officers ‘and other designated officials to handle complaints and grievances.
3.Nodal officers should conduct meetings with the customers.
4.There should be trained, honest, polite, sensitive operating staff to handle the complaints.
5.Understanding customer experience and its implication.
6.Establishing the link between superior customer experience and tangible business outcome such
as customer retention.

References:
• Goyal S, Thakur KS (2008). A Study of Customer Satisfaction Public
and Private Sector Banks of India Punjab, J. Bus. Stud., 3(2): 121-
127.
• Uppal RK (2007). Customer Service in Banks- An Empirical Study’,
Bankers Conference Proceedings, pp. 36-42.
• Kamakodi N (2007). Customer Preferences on e-Banking Services-
Understanding through a Sample Survey of Customers of Present
Day Banks in India Contributors, Banknet Publications, 4: 30-43.
• Mishra JK, Jain M (2007). Constituent Dimensions of Customer
Satisfaction: A Study of Nationalized and Private Banks Prajnan,
35(4): 390-398.
• Jain AK, Jain P (2006). Customer Satisfaction in Retail Banking
Services NICE, J. Bus. Stud., 1(2): 95-102.

17
• Singh SB (2006). Customer Management in Banks Vinimaya, 37(3): 31-
35.
• Bhaskar PV (2004). Customer Service in Banks IBA Bulletin, 36(8): 9-
13.
• Hasanbanu S (2004). Customer Service in Rural Banks: An Analytical
Study of Attitude of Different types of Customers towards Banking
Services IBA Bulletin, 36(8): 21-25.
• Singh S (2004). An Appraisal of Customer Service of Public Sector
Banks IBA Bulletin, 36(8): 30-33.
• Shankar AG (2004). Customer Service in Banks IBA Bulletin, 36(8): 5-7.
• Ganesh C, Varghese ME (2003). Customer Service in Banks: An
Empirical Study’. Vinimaya, 36(2): 14-2

18
 CHALLENGES FOR BANGLADESH BANK

Bangladesh Bank is amongst the most important part of sourcing money for businesses and are
now very active in giving long term loans. The main functions of banks are to earn money from
deposits and loans. Commercial portions follow this step strongly. The main function of a
Bangladesh bank’s commercial section is to mobilize deposits and to provide loans to people and
organizations to finance their consumptions and business activities. (Siqqiqi, Parveen and Hossain,
2013). Thus, banks encourage the flow of money to productive use and investment which
accelerates the flow of economic growth (Ashraf Ali &Howlader, 2005).
Bangladesh has improved in its economic sectors in recent years. The changes in governments
have created lots of challenges in the economic growth rate of the country.
The challenges in the banking sectors have arisen mainly from certain problem. The Governmental
decisions also have huge impact on the banking problems in Bangladesh. The Major challenges
are:
✓ Low quality of Assets
✓ Lack of good governance, accountability, and transparency
✓ Inadequacy of effective risk management system
✓ Weak institutional control
✓ Pre-dominant of individual investors
✓ Limited transparence & weak disclosure practices etc
If there is any development in the economic reforms of this country only then there will be any
development. Investment increases whenever there is a high level of growth in the economy. It
will be possible by proper financial institutions and proper cash flows from banks to banks that the
problems can be overcome (The Financial Express, 2015).

Low quality of asset

The main assets of Bangladesh bank which they use as their uses or investments are Reserve,
Cash item in process of collection, Deposits at other banks, Securities and most importantly
Loans. But in Bangladesh bank there are several problems related to the low quality of
assets which banks are using day by day. During the study we have found two major
problems related to the quality issue about the assets of the banking sectors. From the further part
of our discussion, we will try to focus on those problems

The reserve requirement for our banking sector is 19.5% where Statutory Liquidity Ratio (SLR) is
19.5% including the Cash Reserve Ratio (CRR) 6.5%. If any bank maintains more money than
their required reserve, it will be known or stated as excess reserve. The adequacy of the required
reserve of the bank is very important for any country’s economy because if any bank holds
any excess reserve, the money that they are holding in their volts or other sectors it will be stated

19
as idle money which brings no return. At the month of October and end of year 2019, total liquid
asset of the banking sector stood at Tk. 1860 billion which was more than 1.86 times higher than
the liquid statutory reserve ratio (SLR). As we mention before that this excess money or excess
reserve will not bring any return or will not contribute to our economy. Although during some last
year a significant gap has been created in sources and uses of funds in our banking industry.

Banking industry is burdened with liquidity surplus and it still continuous if we see the statistics
data of central bank and it shows that at the end of month may, 2020 the excess liquidity in banking
sectors stood 102,223 cores. The commercial banks tend to deposit the excess liquidity with the
central bank where central bank charges interest of 5.25% and on the other hand if banks borrow
money from the central banks, it charges 7.25% of interest rate. In the present situation commercial
banks are depositing their more or excess money to the central bank rather than borrowing the
money which increases the cost of the central bank or Bangladesh Bank. Another problem
we want to introduce is NPL (Non-Performing Loan). In our banking sector the rate of Non-
Performing Loan or NPL is continuously increasing, and it has been reached to the amount of 567
billion in the end of month of September 2019. If we see the data of the NPL of the year 2018 it
will show us that from the end of month December 2018 to from the end of month September 2019
the amount of NPL has increased over 33 percent during these few months. The NPL ratio has also
increased from 10 to 13 percent from December end, 2018 to September end, 2019.The loans are
bank’s major source of asset which covers 74% of its whole asset portion

Lack of good governance, accountability and transparency

The banking industry of our country has continuously made considerable progress but despite this
situation the foreign countries are consider our banking system or banking industry activities as
questionable. This occurs because recent news about bank directors and chairmen’s involvement
in political parties. “Also there has been a possibility to unhand bank’s important deals with using
the bank’s goodwill which will question the factor that is our banking industry, and its’ operations
are independent & reliable?
Because of the lack of good governance whatever the banks are publishing in their annual reports
and regulatory paperwork’s and the data they are putting in those papers are they reliable or,
correct? Are those papers have been properly audited? These are the
questions which always knocks the financial experts or advisors because a commercial banks real
competition is not only with its other banks but also it must compete with the non-banking financial
institutions and micro finance institutions.
Our government is failing to achieve growth of the credit target which is contributing to the lower
investment. The Incremental Capital Output Ratio (ICOR) which measure the investments of any
country has shown us that the GDP of our country should be increased which is deteriorating over
the past few years. At the Fiscal Year 2019-20 government tries to increase the investment rate at
32 percent of GDP for achieving the GDP growth rate of 7.2 percent. But due to the negative
growth of credit in both private and public sector, the banks growth rate has been deteriorating

20
which indicates the deregulation in financial sector of our country. In the year of 2019 the growth
of credit in private sector was registered as 11.07 percent over the previous year 2018 which was
lower than the growth of 19.88 percent which was witnessed at same period of the previous year.
In recent years the growth of credit is also declining because of the consecutive monetary policy
of Bangladesh Bank, political unrest, uncertainty in our country and most of all lack of
infrastructure facilities and lawlessness.

Inadequacy of effective risk management system

The risk management system is a combination of some terms which includes asset quality, capital
adequacy, non-performing loan, expenditure income ratio, return on Asset (ROA), & return on
Equity (ROE). If we first talk about the capital adequacy, we must have to say that this is a cushion
for a bank that prevents bank failure. Capital adequacy is measured by the capital to Risk Weighted
Asset. The regulation from the central bank is a commercial bank must maintain 10% of risk
weighted asset (RWA) or tk. 200 whichever is higher as the bank’s minimum required capital. If
the banks cannot maintain or hold their required amount of capital, then a situation came up this
is referred to as “Shortfall of Capital”. In this situation the government would have to restore the
capital position under the extended credit facility loans driven by the International Monetary Fund
(IMF). At the end of year 2019 the bank’s capital shortfall amount was tk. 8863 crores. To meet
the requirement of the IMF our finance minister has decided to revise the recapitalization of banks
proposal and for that banking sector will distribute 4100 crores in the first phase against their
shortfall of capital.
The management of the banking sector either it’s sound or not for that the only indicator is
Expenditure Income Ratio (EIR). If the EI ratio is high that is not good or sound for the bank. In
our country the reasons behind high EI ratio are loan loss provision, high administrative, overhead
expenses, interest suspense for classified loan and the lack of presence of prudential surveillance
of the banking sector.
ROA stands for how much income have been earned from per unit of asset. If we follow BASEL
instruction ROA should be more than 1 percent in any industry. But if we see the statistics data
from 2013 to 2018, we can understand that the stated owned commercial banks have achieved
nearly zero percent of ROA over the period. The situation is much worse in the Development
Financial Institutions as their ROA is less than 1 percent over the period from 2016 to 2018. In the
end of year 2018 the overall ROA in the banking sector was 0.60 percent where it was 1.3 percent
in 2017. If this continues the overall ROA in banking sector may be decreased in the amount of
0.55 percent in 2019.
ROE indicates that high productivity of equity. In year 2017 the overall ROE of the banking sector
was 2017.14.3 percent but in year 2018the amount of ROE decreased and it’s reduced by 6.5
percentage points. Experts say that if this trend continuous the amount of ROE will be decreased
to 6.80 percent in the year 2019.

21
As we can see that every aspect of risk management system was affected with some problems and
low amount of ROA and ROE indicates that the profit margin of our banking sector is not very
high.
Besides these major problems faced by our banking industry we would like to address some
other issues related to our banking sector:
1. Industrial Loan
Since April-June 2017 the growth rate in the industrial term loans has been fluctuating with an
irregular movement and growth rate was also negative. For adequate capital formation loan is a
very important factor like the developing country of ours.
2. Agricultural Credit Disbursement
The growth rate of agricultural credit disbursement and the recovery of credit have been declining
after the month of September 2019. In September 2019 the disbursement of agricultural credit was
1149.04 core but in October 2019 the amount decreased at 1086.56 core. The growth rate of
disbursement of agricultural credit was decreased by 5.4 percent in October 2019.
3. Disbursement of SME loan
Except the specialized banking sector loans given by all banks and financial institutions has been
increased to Tk. 473242.7 core at the end of September 2019 from Tk. 466162.3 core at the end
of June 2019 but the SME loan has decreased by Tk. 9451.91 core at the end of September 2019
from Tk. 24398.34 at the end of September. 2018. It shows that the growth rate in SME loan sector
is negative.
4.Borrowing from the international financial institution
Bangladesh Banks is borrowing more money from the international financial institution since July-
September 2019. Because of the increase of borrowings in every year the expenditure is also going
up because of the higher interest payment BB must pay to the international financial institution for
their borrowings.
5. Credit Growth
Credit growth is the increase in the loans for the private sector, individuals, establishments, and
public organizations. When credit is expanding or increasing, consumers can borrow and spend
more, and businesses can borrow and invest more. The expansion of credit tends to cause the price
of assets such as property and stocks to increase, thereby boosting the net worth of the public.
Increasing consumption and investment produces jobs and expands income and profits. However,
every credit-induced economic boom comes to an end when one or more important sector of the
economy becomes incapable of repaying the interest on its debt (Kgb answer, 2021).
Domestic Credit Growth Rate was 10.78 on 2019 compared to 16 in the previous year. Growth
Deposit on the other hand was above 18 percent at the end of 2019 compared to 19 percent over
the last year. There has been a gap between sources and uses of fund in the banking industry. There
has been a surplus of liquidity in the market. Total liquid Asset went up to Tk. 1860 billion which

22
was higher than the statutory liquidity ratio. Advance Deposit Ratio decreased to 71.70 percent
from 76.59 percent. In the Private Commercial Banks, it went to 77 percent from 79.65 percent.
6. non-Performing loans
A non-performing loan is a loan that is in default or close to being in default. Many loans become
non-performing after being in default for 90 days, but this can depend on the contract terms. Once
a loan is nonperforming, the odds that it will be repaid in full are substantially lower. If the debtor
begins to pay on the NPL it becomes a Reforming Loan, even if the debtor has not caught up all
the missed payments.
Non-performing loans (NPL) has increased in Bangladesh as well. It went to Tk. 567 billion on
the end of September 2013 with a percentage of 33. Therefore, NPL ratio increased to stand at
around 13 percent in 2013 against slightly over 10 percent of December at end of 2012. SCBs
contribute mostly on the classified loan portfolio pie. PCB Nonperforming loans increased. The
NPL ratio of PCB reached to record 7.30 percent. The deterioration of the asset quality adversely
affected the resilience capacity of the PCBs.
Bangladesh Bank relaxed the loan rescheduling policy for the next six months to facilitate
financing in the business. Banks can improve their asset quality management and show better
financial performance. The prime focus of the banking sector would be the recovery of the loans
that has been made last part of the previous year through the central bank’s directory. This might
put the banks in distress if the correct amount is not repaid in at the times. These Banks need to
keep additional capital against

➢ residual risk,
➢ credit concentration risk,
➢ liquidity risk,
➢ strategic risk,
➢ reputation risk,
➢ settlement risk
➢ Evaluation of core risk
➢ Operational Risk

The increased capital requirement might put pressure on the capital requirement of a good number
of banks having marginal capital adequacy (The Financial Express, 2021).
Bangladesh Banks increased the number of Banks. They have thought it will help increase the
quality of banking sectors in Bangladesh. For new banks the ratio of opening inside the rural area.
No banks can focus on rural areas here after focusing on the urban areas. Granting so many licenses
for lots of new banks have created alarming situation. The banking sector is already saturated with
47 commercial Banks. It was not logical to introduce more. There will be unhealthy competition
(The Financial Express,2021).
7. Surplus Liquidity

23
Surplus liquidity occurs where cash flows into the banking system persistently exceed
withdrawals of liquidity from the market by the central bank. Surplus Liquidity:
Implications for Central Banks.

Sources of Surplus
➢ Foreign exchange reserves build
➢ Monetary Financing- asset is lending to government
➢ Bank rescue- asset is LOLR credit and is ultimately a loss (Gray, 2012)
Bangladesh’s commercial banks are washed with idle money due to poor investment and lower
credit demand. Due to political instability al the businesses remained stopped mainly due to
elections.
The excess liquidity increased by Tk240bn or 40% during January-September period of the current
year and stood at Tk840bn from Tk600bn in January, according to the Bangladesh Bank data. The
amount of surplus liquidity increased rapidly while credit growth dropped continuously. The credit
growth of the banks was 13.39% in January with surplus liquidity of Tk600bn, followed by 10.29%
growth in March with Tk660bn in excess liquidity. The growth was 8.97% in June when the
liquidity was Tk790bn and 7.40% in September as the liquidity rose to Tk840bn.
The banks burdened with the huge idle money were looking for alternative investment window as
reflected from their rising investment in the government securities. The banks’ investment in
government securities increased by 26% to Tk1tn during the 9 months period till September from
Tk 990 bn in January, according to the central bank data. “The investment opportunities for the
banks shrunk due mainly for political unrest, lack of gas and electricity. Besides, they also have
barrier to invest in share market according to the amended bank company act,’’ said a senior
executive of a private bank. However, the banks were taking away investment from the capital
market instead of reinvesting there as they are bound to keep their exposure limit at 25% of paid-
up capital and reserves, which also pushed the liquidity to go high, he said.
He said credit growth also decreased due to inflow of low-cost foreign loans in the private sector
as provided by Bangladesh Bank. Banks burdened with excess liquidity (Dhaka Tribune, 2022).

24
 Excess Liquidity
4.5

3.5

2.5

1.5

0.5

0
January 600bn March 660bn June 790bn September 890bn

***Deposit Rate of July 2019 was 8.61% & Sept 2019 was 8.5%
Advance-Deposit Ratio was Sept 2018 & Sept 219 71.65%
Investment in govt. securities up by 26% since January 2019

Risk mitigation strategies

1. Record Management
Several strategies exist for minimizing the risks faced by the Bank. These methods are analyzed,
record management is a universal way that can be used to manage and minimize the risks faced
not only by the Bank but by all business entities. Poor record management poses a risk to many
organizations such as KCB in managing risks. A few scholars such as Makhura (2014), Sydney
University of Technology (2014), Sampson (2009) and Williams (2013) contend that weak records
management programs, systems and practices have remained a problem and a major obstacle to
developing watertight risk management strategies in the banking industry as well as in other
financial institutions.
2. Credit Management
Sound credit management is a prerequisite for financial institution stability and continuing
profitability. Credit risks are increased by poor credit management policy. The prudent
management of credit risk can minimize operational and credit risks. Deteriorating credit quality
is the most frequent cause of poor financial performance and condition. Therefore, a Sound credit
management is a prerequisite for a financial institution’s stability and continuing profitability.
Complying with the credit union’s lending license and by-laws is the first step in managing credit

25
risk. To ensure the level of risk remains within acceptable limits, the loan portfolio is managed on
an ongoing basis.
3. Insurance Insuring against risks is the most common way organizations, Banks included can
minimize risks. Certain risks such as operational risk and risks occasioned by such perils as fire
and hazards such as violence are minimized by insurance. Kenya Commercial Bank has major
insurance policies by different insurance companies that cover a variety of policies.
4. Partnerships and Mergers to overcome this risk, the Bank can partner with local investors in the
countries it operates in and even the local governments. This assures that in the event of political
unrest, the Government in the country in question will protect its interest by assuring the” bank’s
assets are not damaged by the unrest.
5. Due Diligence the Bank is exposed to legal risks. Some of the legal risks are occasioned by the
bank being sued by clients or the employees. Members of the public can also start legal action
against the Bank especially in matters of public interest.
In recent years, Bangladesh has increased in economic sector but there is created lots of problems
due to government changes. Banks are increased in number last many years, and they are trying to
improve their asset quality management and show better financial performance. The focus of the
banking sector would be the recovery of the loans that has been made last part of the previous year
through the central bank’s directory.” but in banking industry, there are several problems like low
quality assets, lack of good governance, transparency, accountability, and Inadequacy of effective
risk management system. The non-performing loans are major concerning here. In this paper, we
are trying to show some NPL related information that are helping us to take decision. The NPL
percentage of different categories of banks is improved at end December 2020 compared with their
performance at end December 2019.Gross and Net NPL as percentage of outsourcing loans in
banking system is not that exposed to capital erosion due to poor asset quality. The NPL loans
have required banks to create cumulative provisions accounting to BDT 281.7 billion as at end of
2020 which is around BDT 32 billion higher than 2019. The CAR is also good because 34 banks’
CARs were within the range of 10%-16%. Overall banking industries in Bangladesh are faced
major problems and the central bank of Bangladesh Bank are trying to solve those problems and
Bangladesh Bank get good result in recent years.

REFRENCES:
1.https://www.academia.edu/19580582/Major_problems_of_the_banking_industry_and_
strategies_to_overcome_them_A_study_on_Bangladesh
2.https://www.researchgate.net/publication/304152297_Bangladesh_Bank_Reform_Chan
ges_and_Challenges
3. https://www.icab.org.bd/publication/news/12/6/Challenges-Faced-by-Banks-and-Non-
Bank-Financial-Institutions-in-Bangladesh

26
 Sustainable development goals of Bangladesh Bank

The terms "sustainability," "sustainable finance," and "sustainable banking" are examples of terms
that are significantly related to one another and greatly complement one another. The COVID-19
pandemic has served as a terrible reminder of the importance of emphasizing these terms to
improve our economy's overall resilience. The real economy and financial ecosystem will
undoubtedly be shaped in the near future by decisions made under the current circumstances. By
ensuring action through financing that is inclusive, resilient, and contributes to the financial system
and national aspirations, the newly developed sustainable finance policy aims to support the
financing of the transition to a sustainable economy as per annual report 2020-21 of Bangladesh
Bank.
Environmental management must be the primary focus of the business community, particularly
the banking sector, which serves as a major intermediary, in an emerging economy like
Bangladesh. A "must do" step in credit approval, monitoring, and evaluation is approaching
environmental and social risks associated with financing activities by banks and non-bank
financial institutions (NBFIs). As a result, Bangladesh Bank (BB), a regulator of the banking
industry, has issued timely guidelines requiring banks and NBFIs to maintain the unwavering
standard of capacity to meet future demands while simultaneously meeting current requirements.
BB has always wanted to give sustainable banking incentives. Considering the limited amount of
time, it has already issued guidelines for green and sustainable finance, environmental and social
risk management, and other related topics. Green finance, sustainable agriculture, sustainable
cottage, micro, small, and medium enterprises (CMSME), socially responsible financing, and other
financing linked to sustainability are all structurally addressed by the introduction of sustainable
finance policy, which has created multiple ways for banks and non-bank financial institutions
(NBFIs) to contribute to inclusive sustainable green growth. Sustainable banking solely centers
around three categories – financial inclusion, sustainable finance and corporate social
responsibility. Sustainable finance initiatives of Bangladesh Bank categorized as follows: policy
initiatives, sustainable finance activities monitoring of banks and NBFIs, refinancing initiative
from Bangladesh Bank in green sectors, and Bangladesh Bank's own initiatives for sustainable
management.

Policy Initiatives
In 2011, Bangladesh Bank issued policy guidelines for green banking for banks and addressed
environmental risk management for the first time. NBFIs were included in green banking activities
in 2013. Bangladesh Bank introduced a sustainable finance policy for NBFIs and banks in 2020.
In the meantime, the government's plans for development, such as the Bangladesh Perspective Plan
2010 – 2021, the National Sustainable Development Strategy (NSDS) 2010-2021, 7th and 8th Five

27
Year Plan, the globally accepted Sustainable Development Goals (SDGs), and the fight against
COVID-19 have been taken into consideration during policy formulation and green activities by
banks and NBFIs. On December 30, 2020, sustainable finance was defined for the first time in
sustainable finance policy. Since January 2021, NBFIs and banks have contributed to sustainable
finance. Banks disbursed BDT 348.14 billion in sustainable finance from January to June of FY21,
while NBFIs disbursed BDT 6.05 billion. During this time, the sustainable finance rate was 7.19
percent of the total loan disbursement.

Environmental and Social Risk Management (ESRM)

Banks and NBFIs are required to perform environmental and social risk rating (ESRR) in
accordance with ESRM guidelines. During FY21, the environmental and social due diligence
(ESDD) checklist was used to rate 93,466 projects. In FY21, 72,678 rated projects received a total
of BDT 2,469.95 billion as per Bangladesh Bank Annual Report 2020-21.

Climate Risk Fund

In FY21, banks and NBFIs used a total of BDT 1.86 billion from the Climate Risk Fund. As a
grant, this sum was used.

Online Banking and Energy Efficiency

Green banking policy has always encouraged banks to set up online branches and solar-powered
branches. At the close of FY21, there were 718 solar-powered branches. At the conclusion of
FY21, 95.48 percent of all branches were online.

Sustainability Rating
On December 31, 2020, the methodology for sustainability rating banks and NBFIs was made
public. The term "sustainability rating" refers to how well a bank or non-bank financial institution
performs in five main areas: sustainable finance, CSR, green refinance, core banking, and
sustainable finance. According to the technical advisory committee and stakeholder consultations,
Bangladesh Bank has increased the number of eligible green products and initiatives under this
refinance scheme from 6 to 55 in FY21. The combined measure of refinance under the plan up to
June 2021 remained at BDT 5,681.89 million. The refinance scheme disbursed a total of BDT
994.81 million in FY21.

Financing Brick Kiln Efficiency Improvement Project Supported by Asian Development

Bank (ADB)
The Financing Brick Kiln Efficiency Improvement Project, a revolving lending facility supported
by the Asian Development Bank (ADB), was established in June 2012 with the goal of improving

28
the brick industry, particularly environmentally friendly brick kilns, through the use of energy-
efficient technology to cut down on greenhouse gases (GHG) and suspended particulate matter
(SPM). This lending facility's total amount is the equivalent of $50.00 million in Bangladeshi
currency.
Corporate Social Responsibility (CSR)
Indicative guidelines for the allocation and end-use monitoring of financial sector corporate social
responsibility (CSR) engagements were released on December 22, 2014. The administrative setup,
budget allocation, expected range/coverage of CSR activities, and end-use monitoring process of
CSR expenditures and activities are all laid out in detail in the guidelines. In addition, on June 10,
2015, BB issued a circular letter requiring banks and financial institutions to report CSR activities.

CSR Activities of Banks and NBFIs

Banks and non-bank financial institutions spent BDT 9225.66 million on CSR in FY21, compared
to BDT 9399.67 million in FY20. In FY21, the bank spent a total of BDT 9120.00 million on CSR.
Banks contributed 44.06 percent, 34.73 percent, and 7.36 percent of the total CSR activities,
respectively, to humanitarian and disaster relief, education, and health.
In an underprivileged area, expenditures were 2.48 percent and 1.97 percent, respectively, for the
improvement of the environment and infrastructure. In addition, cultural welfare accounted for
only 1.59 percent of the total CSR expenditures. It appeared that banks' proportion of spending on
activities that generate income for the poor was insignificant.

Bangladesh Bank's Own CSR Activities

By transferring BDT 50.00 million from its annual profit each year, Bangladesh Bank established
the "Bangladesh Bank Disaster Management and Social Responsibility Fund" to carry out its own
CSR initiatives in a variety of fields, including education, health, the environment, women's
empowerment, and human resource development, among others. with the goal of improving
Bangladesh's underdeveloped sectors and ensuring its long-term growth. Later, in FY15, the fund
was increased to BDT 100.00 million. In FY21, BB contributed BDT 51.65 million, and in FY20,
BB contributed BDT 51.49 million from the fund (via BB's operating profit and bank interest).

Financial Inclusion Activities in Bangladesh

One of the most promising strategies for bringing about equitable and long-lasting economic
growth is financial inclusion. In accordance with this policy objective, BB has been looking into
creative ways to bring financially disadvantaged people into formal financial services. In order to
bring formal financial services to the doorsteps of the majority of people, BB has been promoting
a variety of affordable alternative delivery channels, including digital services, as part of these
initiatives.

29
The Bangladesh Bank has pledged to expand financial inclusion of underserved productive sectors
and added new dimensions to financial markets in order to speed up the eradication of poverty and
promote inclusive economic and social progress. Since 2010, BB has begun outlining its
commitments to the nation through the publication of a "Strategic Plan" in order to meet its
obligations and goals within the allotted time frame and keep track of its own progress.
In its most recent Strategic Plan for 2020-2024, Bangladesh Bank has included a number of action
plans as well as indicators for expanding Bangladesh's financial inclusion.
When those action plans are put into action, it is anticipated that all people, including those with
low incomes, will have access to financial services, that the gender gap will be narrowed, and that
financial service use will rise to the expected level.
The "National Financial Inclusion Strategy (NFIS) of Bangladesh," the nation's first financial
inclusion strategy, reaffirms Bangladesh Bank's commitment to financial inclusion for all citizens,
in addition to the institutional objectives.

References
➢ Bangladesh Bank Annual Report 2020-21

30
 Conclusion

Bangladesh Bank plays very important roles in the economic development of nations as they, to a
large extent, wield control over the supply of money in circulation and are the main stimuli of
economic progress. Economic development is a dynamic and continuous process which is highly
dependent upon the mobilization of resources, investment, and the operational efficiency of the
various segments of the economy. The performance of bank institution another financial institution
needs to be evaluated because it defined as the reflection of the way in which the resources of
a bank are used in a form which enables it to achieve its objectives. As the banking
sector is considered a vital segment of a modern economy, its efficiency is vital importance. In
order to ensure a healthy financial system and an efficient economy, banks and other financial
institution must be carefully evaluated and analyzed. While banks and other financial institution
help business organizations by rendering a wide range of products and services, the products and
services are more or less identical from one bank to another, and there is little scope for
differentiating between them. Therefore, it is necessary to measure the banks’ individual
performance to determine their contribution to business development. In Bangladesh, the
banking sector includes various private and government banks and some private and
government banks have their own branch networks throughout the country. As a consequence of
economic reforms and mobilization, different financial institutions have emerged in the market.
This has not only created an increasingly dynamic and competitive banking environment, which
calls for enhanced evaluation and analysis, but overall, has encouraged greater efficiency in
banking services. Therefore, a strong banking sector including other financial institution is vital
for growth, creating jobs, generating wealth, eradicating poverty, entrepreneurial activity and
increasing Grows Domestic Product (GDP) growth.
The reforms that have taken place over the past two decades helped the central bank to evolve to
a stronger position compared to the past. These reforms enabled the central bank to govern the
financial sector in a more focused and objective manner. It has gradually developed the rules and
procedures along with the fit and proper test criteria to maintain financial sector discipline. These
changes can increase financial intermediation and enhance financial deepening. However, it seems
that many of the changes are donor dictated rather than to be domestically formulated. The
chronology of the reforms and the evaluation of the various reforms associated with central bank
and financial sector suggest and indicate donor participation. The privatization process along with
the financial sector reforms and with globalization necessitated further impetus in the process of
reform. The reforms should continue as new nuts and bolts are required for a smooth functioning
of the financial market. Steps are taken by the government but are slow and are often not complete.
It came clear in the interviews with the stakeholders that some of the reforms and proposed
guidelines and laws are not getting through as they might hinder the interests of vested groups such
as employee union, corrupt business men and even bank employees. These vested groups have
political connections and often exert political pressure, which can result in a lack of discipline in

31
the financial sector. The situation has become more complex as business and politics have joined
hands with businessmen entering politics. The government borrowing from the central bank and
the formal banking sector is opined to be detrimental to the financial sector. This is a window of
government influence on the central bank. A remedy for it could be a limit on the borrowings or
directed to some pre-defined sectors rather than abrupt borrowings by the government. Loan
default is a major problem afflicting the country’s banking as well as financial sector. Strict steps
are expected from the central bank to facilitate recovery of non-performing loans. The regulation
and supervision activities of the central bank should be decentralized and outsourced by creating
new agencies. Many countries have adopted this and experts in the country think that this
possibility should be explored. The central bank can thus work on monetary policy in a more
focused manner and in a credible way. An autonomous central bank could be more credible in its
decisions and actions. Less government influence reduced mandatory participation from the
executive wing in the central bank affairs and most importantly less politicization autonomous and
professional autonomous and professional environment for the central bank.

32